By Pooja Meena, National Law University, Jodhpur.

The railways operate more than 12,000 trains, carrying some 23 million passengers daily. This vast public enterprise is virtually a state within a state. It runs schools, hospitals, police forces and building companies and employs a total of 1.3 million people, making it the seventh biggest employer in the world. It is in need of modernization.

The high-level railway restructuring committee, chaired by noted economist Bibek Debroy, has recommended drastic reforms in the cash-strapped Indian Railways by suggesting to allow privatisation of railways to run passenger as well as freight trains, producing coaches, wagons and locomotives and switching over to commercial accounting of railway functions. “Private entry into running both freight and passenger trains in competition with Indian Railways should be allowed and private participation in various Railway infrastructure services and non-core activities like production and construction, should be encouraged by the ministry,” the seven member committee has said in its interim report.[1]

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The Interim Report of the Committee for Mobilization of Resources for Major Railway Projects and Restructuring of Railway Ministry and Railway Board, chaired by NITI Aayog Member Bibek Debroy,  stressed on Prime Minister Narendra Modi’s ‘Make in India’ campaign and argued that investment in IR has a massive multiplier effect in the Indian economy. The Report said, “From the 2007-08 data, it appears that increasing the railway output by Rs 1 would increase output in the economy by Rs 3.3. This large multiplier has been increasing over time, and the effect is greatest on the manufacturing sector. Investing in the IR could thus be good for ‘Make in India’.”[2]

Following are the main recommendations in its interim report[3]

  1. Streamline recruitment & HR processes: There is a multiplicity of different channels through which people enter the railway services. The committee recommended unifying and streamlining the process. At present there are eight organized Group ‘A’ services in Indian Railways. Deployment to these services is by direct recruitment from UPSC (Civil Service and the Engineering examinations) and also by promotion of Group ‘B’ officers of the department. There is also a small but significant element of recruitment of Mechanical Engineers through the Special Class Railway Apprentices examination, followed by training. The eight services can be broadly categorized in two bigger groupings viz. technical and non-technical services.

IR should consolidate and merge the existing eight organized Group ‘A’ services into two services i.e. the Indian Railway Technical Service (IRTechS) comprising the existing five technical services (IRSE, IRSSE, IRSEE, IRSME and IRSS) and the Indian Railway Logistics Service (IRLogS), comprising the three non-technical services (IRAS, IRPS and IRTS).

  1. Focus on non-core areas: Many tasks carried out by the Indian Railways are not at the core of the prime business of rail transportation. These activities include running hospitals and schools, catering, real estate development, including housing, construction and maintenance of infrastructure, manufacturing locomotives, coaches, wagons and their parts, etc. To this list must be added the Railway Protection Force and Railway Protection Special Force, which carry out functions which should normally be performed by State Police forces, or conveniently outsourced. To maintain and run these diverse sets of peripheral activities, Indian Railways has created a monolith organizational structure. There is a strong case for revisiting these activities. Indian Railways should focus on core activities to efficiently compete with the private sector. It will distance itself from non-core activities, such as running a police force, schools, hospitals and production and construction units.

Immediate integration of the existing Railway schools into the Kendriya Vidyalaya Sangathan set-up. Needs of the children of Railway employees could be met through subsidizing their education in alternative schools, including private schools.

  1. Indian Railway Manufacturing Company: Wagons are already produced by the private sector. Coaches and locomotives could follow. Unless they are freed from constraints, the existing production units will be unable to face this competition. All the production units, all the production workshops whether it is coaches or locomotives must be under Indian railway manufacturing company. This is an institutional reform, not privatisation. The Committee proposes that all these existing production units should be placed under a government SPV known as the Indian Railway Manufacturing Company (IRMC). IRMC remains a government SPV, at least initially, under the administrative control of the Ministry of Railways.
  1. Encouraging private entry: Private entry into running both freight and passenger trains in competition with Indian railways should be allowed and private participation in various Railway infrastructure services and non-core activities like production and construction, should be encouraged by the Ministry of Railways. The reason private players find it unviable to operate is because they do not have access to the tracks. They do not have access to tracks because Indian Railways gives preference to the Indian Railway trains. Therefore, Debroy committee recommended having a separate track holding company, which remains public, from that part of Railways which runs trains. This track holding company will be neutral between Indian Railways and the private players.
  1. RRAI, an independent regulator: Shift regulatory responsibility from the government to an independent regulator as the private sector will only come in if there is fair and open access to infrastructure. The independent regulator shall ensure fair and open access and set access charges; establish tariffs; and adjudicate disputes between competitors. This will make fair and open access a reality and open up both freight and passenger trains, in competition with IR. The report recommends setting up a Railway Regulatory Authority of India (RRAI) statutorily, with an independent budget, so that it is truly independent of the Ministry of Railways.

The RRAI will have the powers and objectives of economic regulation, including, wherever necessary, tariff regulation; safety regulation; fair access regulation, including access to railway infrastructure for private operators; service standard regulation; licensing and enhancing competition; and setting technical standards. It should possess quasijudicial powers, with appointment and removal of Members distanced from the Ministry of Railways.

The Railway Board should continue only as an entity for the Indian Railways (PSU).

  1. Social costs & JVs to bear them: Constructing new suburban lines should be undertaken as joint ventures with state governments. There are too many Zones and Divisions and thus a rationalization exercise is required. Suburban railways should ideally be hived off to State governments, via the joint venture route. Until this is done, the cost of low suburban fares, if these fares are not increased, must be borne by State governments on a 50/50 basis, with MOUs signed with State governments for this purpose.

While competition makes efficient service delivery better and helps railways raise resources for reinvestment for modernization, criticism is that social commitments may take a hit; and privatization that hurts workers may be under contemplation. PM Modi ruled out privatization. The Committee has recommended restructuring in a way that the government is only responsible for the Railway sector policy. This will give autonomy to IR and encourage private investment.[4]

The Debroy panel has cautioned against leaving the implementation of its recommendations on the existing directorates of the Railway Board. “Otherwise, this report is bound to confront a fate similar to its predecessors. We would suggest that the implementation ownership of this Report should vest in the Minister of Railways alone, with an appropriate reporting mechanism to the PMO,” the report said. Debroy has also asked for implementing the recommendations as a “package” and not through a process of “pick and choose” the suggestions made are inter-linked.[5]

So in my opinion, Recommendations of Bibek Debroy Committee are welcome. Question is how seriously and how soon would the NDA government consider these recommendations. My fear is that these recommendations may be sent to a sub committee of Parliament and then nothing much will happen during next few years. Hence the right response of the Railway Minister should be to move quickly to implement suggestions regarding corporatization of the Railway Board and of formation of a separate railway infrastructure company.

[1] http://smartinvestor.business-standard.com/market/Marketnews-303801-Marketnewsdet-Debroy_committee_bats_for_pvt_entry_in_railway_operations_independent_regulator.htm#.VTP6XCuUfr8

[2] http://www.dnaindia.com/money/report-interim-report-recommends-sweeping-changes-in-indian-railways-liberalisation-private-entry-key-2073500

[3] http://www.indianrailways.gov.in/railwayboard/uploads/directorate/HLSRC/Interim_Report.pdf

[4] http://www.indianrailways.gov.in/railwayboard/uploads/directorate/HLSRC/Interim_Report.pdf

[5] http://smartinvestor.business-standard.com/market/Marketnews-303801-Marketnewsdet-Debroy_committee_bats_for_pvt_entry_in_railway_operations_independent_regulator.htm#.VTP6XCuUfr8

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